Ita/132/2010 Of The Commissioner Of Income Tax, Cochin v. M/S. Metrolla Iron & Strips Co. Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE K.SURENDRA MOHAN WEDNESDAY, THE 15TH SEPTEMBER 2010 / 24TH BHADRA 1932 ITA.No. 132 of 2010() --------------------- ITA.811/COCH/2008 of INCOME TAX APPELLATE TRIBUNAL,COCHIN BENCH .................... APPELLANT:APPELLANT: ---------------------------------------- THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADV. SRI.JOSE JOSEPH, SC, INCOME TAX RESPONDENT(S): RESPONDENT: -------------------------------------------------- M/S. METROLLA IRON & STRIPS CO.LTD., MADAPPARAMBIL CHAMBERS, M C ROAD, MUVATTUPUZHA 686 661. THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 15/09/2010 ALONG WITH ITA NO. 182 OF 2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Kss 'CR' C.N.RAMACHANDRAN NAIR &K. SURENDRA MOHAN, JJ. ------------------------------------------------------------ I.T.A. NOS:132 & 182 OF 2010 ----------------------------------------------------------- Dated this the 15[th] September, 2010. JUDGMENT Ramachandran Nair, J. The question raised in the connected appeals filed by therevenue against the very same assessee for the assessment years2002-03 and 2005-06 is whether the Tribunal was justified inconfirming the deduction allowed by the CIT(Appeals) under Section80 (IB) of the Income Tax Act. The case of the department is thatassessee did not engage ten or more workers during the previousyear relevant for the assessment years in the industry and so muchso one of the conditions of Section 80(IB) is not satisfied.Consequently deduction claimed was rightly declined by theAssessing Officer is their case. However, before CIT (Appeal) theassessee produced evidence to prove employment of more than 10workers during the previous years relevant for the assessment yearsand besides this assessee contended that when contract employeesare counted the number exceeded the minimum that entitles the ITA 132 & 182/2010 assessee for deduction. The CIT (Appeal) allowed the claim on boththe grounds that is by accepting evidence on employment of morethan 10 workers and assessees entitlement to count the contractworkers also for the purpose of granting deduction. On furtherappeal by the Department the Tribunal confirmed the CIT (Appeals)order with regard to the number of employees directly engagedand by relying on two decisions of the Gujarat High Court andKarnataka High Court the Tribunal upheld the order of the CIT(Appeal) on the entitlement of the assessee to reckon contractemployees also as workers for the purpose of requirement of theSection. It is against these orders of the Tribunal the Departmenthas filed the appeals raising disputes on factual findings aboutnumber of workers directly engaged by the assessee and also bychallenging findings by the Tribunal on the entitlement of theassessee to reckon contract employees as workers engaged by theassessee for the purpose of Section 80(IB) of the Act. 2. We have heard standing counsel appearing for theappellant-department. There is no dispute as to the entitlement ofthe assessee for deduction under Section 80(IB) of the Act except inregard to number of employees engaged by it in the manufacturingprocess in the industry. In other words if the respondent-assessee ITA 132 & 182/2010 2. We have heard standing counsel appearing for theappellant-department. There is no dispute as to the entitlement ofthe assessee for deduction under Section 80(IB) of the Act except inregard to number of employees engaged by it in the manufacturingprocess in the industry. In other words if the respondent-assessee ITA 132 & 182/2010 has engaged the required number of employees in terms of Section80(IB)(2)(iv) then it is entitled to the deduction provided under theSection. Further there is no dispute that the respondent is engagedin the manufacturing activity with the aid of power and thereforethe number of employees required for eligibility for deduction is tenor above. On going through the Tribunal's order we find that theTribunal has confirmed the finding of the first appellate authoritythat the respondent-assessee had in fact employed about ten andabove workers during the relevant previous years and this findingby the first appellate authority confirmed by the Tribunal is basedon evidence before it. Even though standing counsel challengedbefore us the veracity of evidence produced towards proof ofemployment of ten or above workers on regular basis we do notthink there is any justification for us to interfere with the finding offact by the Tribunal in an appeal filed under Section 260A of theAct wherein we are only concerned with substantial questions of lawarising from Tribunal's order. Therefore respondent's entitlementfor deduction under Section 80(IB) based on findings of the Tribunaldoes not call for interference in the appeal filed by the Revenue.Consequently, we answer the question raised on this issue againstthe revenue. However, since apparently conflicting views are ITA 132 & 182/2010 expressed by various High Courts on the entitlement of assesseefor reckoning contract employees as their employees for thepurpose of claiming deduction under Section 80(IB) we shouldconsider the question at least for other cases and to settle thecontroversy at the level of this Court at the earliest opportunity. 3. The Standing Counsel has relied on the decision of theAlahabad High Court in the case of R & P Exports v. Commissionerof Income Tax (279 ITR 536) to contend that the decisions of theother High Courts followed by the Tribunal do not lay down thecorrect law. However, we notice that in the case decided by theAlahabad High Court payment made by the Industry was on piecerate basis and there is nothing to indicate that contract employeeswere engaged by the company. We notice that Gujarat High Courthas consistently taken the view in the decision reported inCommissioner of Income Tax v. Narania and Company (252 ITR884) and another decision in Commissioner of Income Tax v.Prithviraj Bhoorchand (280 ITR 94) that casual employees shouldbe reckoned for the purpose of considering entitlement for theIndustry to claim deductions under Section 80(HH) and 80(IB) ofthe Income Tax Act. ITA 132 & 182/2010 ITA 132 & 182/2010 4. In this case the finding of the Tribunal is that besidesdirect employment, respondent assessee was engaging workers ona rather regular basis through contractors. The purpose of grantingan incentive to an industry based on number of employees engagedis to encourage generation of employment for the people in thecountry. What is important is employment for the people and somuch so in our view the objective of the Section is achieved by therespondent engaging employees in the industry and it is immaterialeven if such employment is through contractors. The question tobe considered is whether the employment generated is directlyattributable to the industry and the employment is in it and if sothe assessee is entitled to reckon all such employees engaged inthe industry whether directly or through contractors for thepurpose of claiming deduction. We feel the principle laid down bythe Supreme Court in Commissioner of Income Tax v. StrawboardManufacturing Company Ltd. (177 ITR 431) is applicable to thiscase because an incentive available to an industry under theIncome Tax Act should not be declined to it on technical grounds.The objective of the Income Tax Act is not merely collection ofrevenue but the provisions therein are made keeping in mind theother needs of the country, the most important of which is ITA 132 & 182/2010 industrial development involving generation of employment. Somuch so we feel the number of employments generated by therespondent assessee on a rather regular basis should be reckonedfor the purpose of considering eligibility for deduction underSection 80(IB) of the Act. However, we make it clear that theemployment through contractor we have in mind is rather steadyand regular employment for substantial period in the year and itshould not be casual or employment once in a while. We thereforeuphold the order of the Tribunal on this issue also and dismiss thedepartment appeal. C.N.RAMACHANDRAN NAIR Judge jj K. SURENDRA MOHANJudge